EUR/USD Falls Sharply Amid Inflation Data and Tariff Concerns

The EUR/USD pair dropped significantly to near 1.0780 following the release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for March. While Eurozone inflation grew at a faster pace month-over-month, it declined on an annual basis.

Market sentiment remains divided over whether Trump’s proposed tariffs will push the U.S. into recession. During the North American trading session on Tuesday, EUR/USD slumped as the U.S. Dollar (USD) held firm ahead of President Donald Trump's announcement on reciprocal tariffs.

Despite fears of economic disruption, the USD gained strength as domestic importers braced for higher costs. Reports suggest that the White House is considering imposing a 20% tariff on most U.S. imports, as outlined by the Washington Post.

Recession Risks Rise Amid Uncertainty

Concerns over Trump’s economic policies driving a potential U.S. recession continue to mount. Goldman Sachs revised its probability of a U.S. recession upward to 35%, up from a previous 20%, citing a deterioration in consumer and business confidence.

Meanwhile, International Monetary Fund (IMF) Managing Director Kristalina Georgieva acknowledged increased economic uncertainty but downplayed recession fears. She stated that the IMF has not observed a "dramatic impact" from Trump's proposed tariffs so far.

Market Focus: Economic Data and Fed Policy Outlook

Investors are also awaiting a series of business and labor market reports, which will shape expectations for the Federal Reserve’s (Fed) monetary policy. Key data releases in the New York session include:

• U.S. S&P Global and ISM Manufacturing PMI (March)

• JOLTS Job Openings (February)

• U.S. construction spending (February)

Eurozone Inflation and ECB Rate Expectations

The Eurozone HICP rose 2.2% year-on-year in March, in line with expectations but slower than February’s 2.3% rise. Core inflation, which excludes volatile items, eased to 2.4% from 2.6%.

With soft inflation data, investors anticipate the European Central Bank (ECB) will cut interest rates again on April 17. ECB President Christine Lagarde emphasized the need for Europe to "take better control of its destiny" in light of Trump’s economic policies.

Trump’s Tariffs and EU Response

A major driver for the Euro (EUR) outlook is the detailed reciprocal tariff plan expected from Trump. Market participants anticipate a wave of new import duties on Eurozone goods, as Trump has long accused the European Union (EU) of unfair trade practices.

One of the most concerning measures is the 25% tariff on foreign car and light truck imports set to take effect on Wednesday. The announcement has already prompted financial analysts to revise Germany’s growth forecasts downward, given that 13% of its total auto exports go to the U.S.

The European Commission (EC) has countermeasures in place. EC President Ursula von der Leyen reaffirmed the EU’s readiness to retaliate:

“We do not necessarily want to retaliate, but if necessary, we have a strong plan, and we will use it.”

Technical Analysis: EUR/USD Nears 1.0780

EUR/USD trades near 1.0780 against the USD on Tuesday. The 20-day Exponential Moving Average (EMA) at 1.0776 provides immediate support.

The 14-day Relative Strength Index (RSI) has fallen below 60.00, signaling that bullish momentum has weakened, although an upside bias remains intact.

Key Levels to Watch:

• Support: December 6 high at 1.0630

• Resistance: Psychological level at 1.1000

Market Outlook

The EUR/USD pair remains under pressure as investors closely monitor Trump’s tariff announcement. If the reciprocal tariffs are more aggressive than anticipated, the Euro could face further downside risks, while the USD strengthens on safe-haven demand. However, any signs of economic disruption in the U.S. could lead to increased volatility and potential Fed policy adjustments.